Correlation Between Alfen NV and Signify NV

Can any of the company-specific risk be diversified away by investing in both Alfen NV and Signify NV at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Alfen NV and Signify NV into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alfen NV and Signify NV, you can compare the effects of market volatilities on Alfen NV and Signify NV and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Alfen NV with a short position of Signify NV. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alfen NV and Signify NV.

Diversification Opportunities for Alfen NV and Signify NV

0.13

Correlation Coefficient

Alfen NV  Signify NV

Average diversification

The 3 months correlation between Alfen and Signify is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Alfen NV and Signify NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Signify NV and Alfen NV is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Alfen NV are associated (or correlated) with Signify NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Signify NV has no effect on the direction of Alfen NV i.e., Alfen NV and Signify NV go up and down completely randomly.

Pair Corralation between Alfen NV and Signify NV

Assuming the 90 days horizon Alfen NV is expected to under-perform the Signify NV. In addition to that, Alfen NV is 1.31 times more volatile than Signify NV. It trades about -0.18 of its total potential returns per unit of risk. Signify NV is currently generating about -0.01 per unit of volatility. If you would invest  1,175  in Signify NV on September 2, 2024 and sell it today you would lose (25.00) from holding Signify NV or give up 2.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Alfen NV  vs.  Signify NV

Alfen NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alfen NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Signify NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Signify NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Signify NV is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alfen NV and Signify NV

The main advantage of trading using opposite Alfen NV and Signify NV positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alfen NV position performs unexpectedly, Signify NV can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Signify NV will offset losses from the drop in Signify NV's long position.

The idea behind Alfen NV and Signify NV pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.